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German banks want a digital Euro

The Association of German Bank, which represents the interests of 200 German lenders, has come out in support of a “programmable digital euro.”

In a new position paper, the industry body explores how financial institutions can contribute to creating an innovative monetary system, the actions lawmakers and regulators should take to design an environment where banks can remain competitive, and what is required to ensure the stability of the financial system.

German Lenders

On October 30, the Association of German Banks, ‘Bankenverband,’ published a position paper titled “German banks say: The economy needs a programmable digital euro!”

The German banking industry is convinced that the future of money will be different than the status quo. The recent discussions surrounding the Libra have shown this. However, German banks want government-backed (or at least government-approved) digital currencies to become the norm as opposed to decentralized alternatives, such as bitcoin (BTC).

“There can be no question that responsibility for the monetary system lies, and will continue to lie, with sovereign national states. Any currency provided either by banks or by other private companies must, therefore, fit into the state-determined system. Anything else would ultimately lead to chaos and instability,” the industry body states.

In the report, the Association of German banks presents eleven positions that highlight its views on what it will take for the banking industry to remain competitive in the fast-changing financial technology landscape. The association also touches on what it believes is necessary to ensure a stable monetary system and how authorities can aid in that aspect.

In summary, the eleven positions are as follows:

  • The financial system must not be destabilized by cryptocurrencies
  • German banks consider programmable digital money as an innovation with great potential
  • A programmable account and crypto-based euro should be created to establish a pan-European payments platform
  • There has to be a uniform supervisory and regulatory framework, and programmable money must be allowed to exist under existing banking license rules
  • Regulators and lawmakers must take the necessary steps to enable digital innovation
  • European lawmakers must agree on a uniform European approach to financial innovation
  • A digital euro has to come with a European (or global) identity standard
  • Programmable digital money will require a robust data protection strategy
  • There needs to be legal clarity on how a digital euro can be used
  • German tax law must clarify whether programmable money is a currency or an economic good for taxation purposes
  • Deposit guarantee schemes must also exist for programmable money to encourage use and build trust

The points made about the need for financial stability and a regulatory and legal environment that is conducive to the adoption of new innovations are nothing new. What is new is the banking sector’s desire for a crypto-based programmable euro.

German lenders firmly believe that programmable digital money and their interlinked nature with smart contracts will gain importance in the digital economy.

Privately-issued digital currencies such as Libra, however, could endanger the stability of the financial system, according to the report. Hence, German lenders want a regulated, state-backed programmable money that can live within existing regulatory framework and will help to bolster financial stability as opposed to threatening it.

German banks are advocating for the introduction of account-based and crypto-based programmable money that will combine the best features of government-issued digital fiat currency and distributed ledger technology-based digital currency.

“The German private banks rate programmable digital money as an innovation with great potential that can be a key component in the next stage of the evolution of digitalization,” the paper states.

Cryptocurrencies Will be Part of the Future

While the support of a blockchain-based “euro coin” still fits into the “blockchain not bitcoin” agenda that banks have been pushing for years, it shows that the world is changing. Blockchain technology, smart contracts, and digital currencies will be a part of that new world.

China has already taken the lead in this aspect with its planned launch of a digital yuan and its recently announced nationwide blockchain initiative. Germany, of course, does not want to be left behind. Nor do other economic superpowers.

In light of how cryptocurrencies and blockchain technology have evolved in the past decade, it is not too far-fetched to envision a world where all currencies are digital and operating on a blockchain in the not-so-distant future.

While the cypherpunk movement that sparked the creation of Bitcoin will likely not be pleased to see a state-backed, blockchain-based currency linked to each user’s identity, it may just be the direction that money is heading.


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